Suppose that today is Monday, February 19, 2024, and you have a loan of $5,000,000 outstanding, on which you will have to make a floating-rate interest rate payment on Friday, February 23. The interest payment is determined based on a 3-month SOFR rate on that day. You fear that in the next several days the rate might rise. So, you hedge yourself by trading 3-month SOFR futures. Assume that you enter the position at the settle of the day on Monday, February 19.

In order to hedge yourself, which position in 3-month SOFR futures will you take (i.e. buy or sell, contract maturity, and the number of contracts)?

a. What is your daily gain or loss on your futures position (on Tuesday, Wednesday, Thursday, and Friday)?

b. What is the interest rate payment that you have to make on Friday, February 23, on your $5,000,000 loan?

c. What is the net cost to you, taking into account the gains/losses on your hedge, plus the interest payment on the loan (ignore the time value of money)?

Daily Settlements for 3-month SOFR Futures (FINAL)Trade Date: 02/20/2024 (Tuesday)

Month	Open	High	Low	Last	Change	Settle	Estimated Volume	Prior Day Open Interest
DEC 23	94.6450	94.6475	94.6450	94.6475	+.0025	94.6475	18,990	1,128,914
JAN 24	-	-	-	-	+.0025	94.6600	0	6,639
FEB 24	94.6725	94.6775	94.6725	94.6725	+.0025	94.6775	142	2,030
MAR 24	94.7125	94.7200	94.7075	94.7100	+.0025	94.7125	297,254	1,126,668
APR 24	94.7950	94.7950	94.7950	94.7800A	+.0025	94.7775	30	1,127

Daily Settlements for 3-month SOFR Futures (FINAL)Trade Date: 02/22/2024 (Thursday)

Month	Open	High	Low	Last	Change	Settle	Estimated Volume	Prior Day Open Interest
DEC 23	94.6450	94.6475	94.6450	94.6475	-.0025	94.6450	14,461	1,127,556
JAN 24	-	-	94.6550A	94.6550A	-.0025	94.6550	0	6,641
FEB 24	-	-	94.6700A	94.6700A	-.0050	94.6700	0	2,025
MAR 24	94.6975	94.7050	94.6925	94.6950	-.0050	94.6975	446,874	1,120,139
APR 24	94.7600	94.7600	94.7450A	94.7450A	-.0100	94.7550	202	1,142

Daily Settlements for 3-month SOFR Futures (FINAL)Trade Date: 02/23/2024 (Friday)

Month	Open	High	Low	Last	Change	Settle	Estimated Volume	Prior Day Open Interest
DEC 23	94.6450	94.6475	94.6450	94.6475	-.0050	94.6400	15,561	1,127,119
JAN 24	-	-	-	-	-.0050	94.6500	0	6,641
FEB 24	-	-	94.6625A	94.6625A	-.0050	94.6650	0	2,025
MAR 24	94.6950	94.6975	94.6800	94.6825	-.0100	94.6875	316,812	1,129,226
APR 24	94.7300	94.7450	94.7300	94.7350A	-.0100	94.7450	25	1,252

3-month SOFR rate (90-day average):

February 19, 2024 5.35945 %

February 20, 2024 5.35873 %

February 21, 2024 5.35863 %

February 22, 2024 5.35851 %

February 23, 2024 5.35831 %